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Foreign direct investment via M&A and domestic entrepreneurship: blessing or curse?

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  • Seçil Hülya Danakol

    (Utrecht University)

  • Saul Estrin

    (London School of Economics)

  • Paul Reynolds

    (Aston University)

  • Utz Weitzel

    (Utrecht University
    Radboud University)

Abstract

There are conflicting predictions in the literature about the relationship between FDI and entrepreneurship. This paper explores how foreign direct investment (FDI) inflows, measured by lagged cross-border mergers and acquisitions (M&A), affect entrepreneurial entry in the host economy. We have constructed a micro-panel of more than two thousand individuals in each of seventy countries, 2000–2009, linked to FDI by matching sectors. We find the relationship between FDI inflows and domestic entrepreneurship to be negative across all economies. This negative effect is much more pronounced in developed than developing economies and is also identified within industries, notably in manufacturing. Policies to encourage FDI via M&A need to consider how to counteract the prevailing adverse effect on domestic entrepreneurship.

Suggested Citation

  • Seçil Hülya Danakol & Saul Estrin & Paul Reynolds & Utz Weitzel, 2017. "Foreign direct investment via M&A and domestic entrepreneurship: blessing or curse?," Small Business Economics, Springer, vol. 48(3), pages 599-612, March.
    • Handle: RePEc:kap:sbusec:v:48:y:2017:i:3:d:10.1007_s11187-016-9792-z
    DOI: 10.1007/s11187-016-9792-z
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    Keywords

    Foreign direct investment; Entrepreneurship; New firm entry; Spillovers;
    All these keywords.

    JEL classification:

    • J1 - Labor and Demographic Economics - - Demographic Economics

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